In a recent paper, García-Mainar and Montuenga-Gómez [Econ. Edu. Rev. 24 (2005)] apply the generalized IV model of Hausman and Taylor to estimate education returns of wage earners and the self-employed in Portugal and in Spain. Our examination reveals several problems which relate to the validity and documentation of the instrumental variables, as well as the robustness of the results.

Files in this item: 1

This paper analyzes educational choices and political support for subsidies to higher education in the presence of a time-consistency problem in income redistribution. There may be political support for so generous subsidization that it motivates the median voter to obtain higher education. As a result of increasing own income, the median voter prefers in the future lower taxes than without higher education. Therefore, the expansion of participation in higher education during the second half of the 20th century may have partly been driven by the aim to limit the political support for overly generous income redistribution. education, time-consistency problem, voting, subsidies to education

Files in this item: 1

This paper develops a theory of consumer boycotts. Some consumers care not only about the products they buy but also about whether the firm behaves ethically. Other consumers do not care about the behavior of the firm but yet may like to give the impression of being ethical consumers. Consequently, to affect a firm’s ethical behavior, moral consumers refuse to buy from an unethical firm. Consumers who do not care about ethical behavior may join the boycott to (falsely) signal that they do care. In the firm’s choice between ethical and unethical behavior, the optimality of mixed and pure strategies depends on the cost of behaving ethically. In particular, when the cost is (relatively) low, ethical behavior arises from a prisoners’ dilemma as the firm’s optimal strategy.

Files in this item: 1

In European Welfare States, low-skilled workers are typically unionized, while the wage formation of high-skilled workers is more competitive. To focus on this aspect, we analyze how flexible international outsourcing and labour taxation affect wage formation, employment and welfare in dual domestic labour markets. Higher productivity of outsourcing, lower cost of outsourcing and lower factor price of outsourcing increase wage dispersion between the high-skilled and low-skilled workers. Increasing wage tax progression of low-skilled workers decreases the wage rate and increases the labour demand of low-skilled workers. It decreases the welfare of lowskilled workers and increases both the welfare of high-skilled workers and the profit of firms.

Files in this item: 1

This paper identifies several distortions which create barriers to entrepreneurship. First, in addition to the innate entry cost, there are entry costs caused by regulation. Second, union wage policies raise the opportunity cost of entrepreneurship. Third, inefficiencies in the transmission of tacit knowledge between generations of entrepreneurs can arise: with access to within-family ownership transfer, the outside market for entrepreneurship operates as a lemon’s market. This problem becomes relevant when the economic life of a business idea exceeds the active life of an entrepreneur. barriers to entrepreneurship, tacit knowledge, occupational choice

Files in this item: 1

We consider the effects of income redistribution when people can migrate from one country to another, and when land within
each country is heterogeneous. Taxes related to income can then affect property values, and can induce migration, which further affects property values. We show that under these conditions a utilitarian government should never equalize after-tax incomes. If migration is impossible, it may even transfer income from the poor to the rich, reducing the rents earned by absentee landlords. The redistributive tax on the rich may be higher or lower when the rich can migrate than when they cannot. A Rawlsian government in the absence of mobility will equalize after-tax incomes. Under mobility, Rawlsian governments cut their taxes if and only if the relative pre-tax income of the poor is sufficiently low.

Files in this item: 1

Economic theory predicts that military conscription is associated with static inefficiencies as well as with dynamic distortions of the accumulation of human and physical capital. Relative to an economy with an allvolunteer force, output levels and growth rates should be lower in countries that rely on a military draft to recruit their army personnel. For OECD countries, we show that military conscription indeed has a statistically significantly negative impact on economic performance.

Files in this item: 1

We evaluate the effects of international outsourcing and labor taxation on wage formation and equilibrium unemployment in dual labor markets. Outsourcing promotes wage dispersion between the high-skilled and low-skilled workers. Higher domestic low-skilled wage tax, higher payroll tax and lower wage tax exemption increase optimal outsourcing. Outsourcing will reduce equilibrium unemployment of low-skilled workers both in the presence and absence of labor taxation. In the presence of outsourcing, wage tax, tax exemption and payroll tax have an ambiguous effect on equilibrium unemployment. Increasing the degree of tax progression decreases the wage rate and increases the demand of low-skilled workers.

Files in this item: 1

We show that taxation of rents may yield an intergenerational Pareto-improvement in a small open economy provided tax revenues are earmarked to reduce wage taxes. Previous literature has shown that rent taxation benefits current young and future generations, while we show that it also benefits the current old generation when the initially prevailing tax mix is sufficiently skewed towards wage taxation. Rent Taxes, Capitalization, Transitional Dynamics, Labor Supply, Asset Prices.

Files in this item: 1

We study the welfare effects of earnings testing flat-rate old-age benefits in a quantitative overlapping generations model with idiosyncratic labor income risk. In our model economy, even a moderate earnings testing reduces individuals’ expected lifetime utility, whenever other taxes are taken into account. Moreover, it also lowers the realized lifetime utilities of those at the bottom of the lifetime utility distribution. Social security; Retirement; Means-testing

Files in this item: 1

We study the social interaction of non-smokers and smokers as a sequential game, incorporating insights from social psychology and experimental economics into an economic model. Social norms a®ect human behavior such that non-smokers do not ask smokers to stop smoking and stay with them, even though disutility from smoking exceeds utility from social interaction. Overall, smoking is unduly often accepted when accommodating smoking is the social norm. The introduction of smoking and non-smoking areas does not overcome this speci¯c ine±ciency. We conclude that smoking bans may represent a required (second-best) policy. smoking policy, health, social norms, guilt aversion, social interaction

Files in this item: 1

Empirical evidence reveals that unemployment tends to increase property
crime but that it has no effect on violent crime. To explain these facts, we examine a model of criminal gangs and suggest that there is a substitution effect between property crime and violent crime at work. In the model, non-monetary valuation of gang membership is private knowledge. Thus the leaders face a trade-off between less crime per member in large gangs and more crime per member in small gangs. Unemployment increases the relative attractiveness of large and less violent gangs engaging more in property crime. Violence, Crime, Gangs, Unemployment, Identity